Take a look at the first 1:30 of the video above and consider what you hear (or read the transcript of the conversation below):
“As to what to do for the housing industry specifically — and are there things that you can do to encourage housing? One is, don’t try and stop the foreclosure process,” said Romney. “Let it run its course, and hit the bottom, allow investors to buy up homes, put renters in them, fix the homes up, and let it turn around and come back up.
“The Obama administration has slow-walked the foreclosure process that long existed, and as a result we still have a foreclosure overhang.
“Number two, the credit that was given to first-time homebuyers was insufficient and inadequate to turn around the housing market. I think it was an ineffective idea, it was a little bit like the Cash For Clunkers program — throwing government money at something, which was not market-oriented, did not staunch the decline in home values any more than it encouraged the auto industry to take off.” (Emphasis added).
The first thing to note is that Romney is here speaking with the editorial board of the Las Vegas Review-Journal, in Las Vegas, the foreclosure capital of the nation. How’s that for the straight talk express, Romney Style?
There’s been a lot of commentary today on Romney’s argument against stopping the foreclosure process, and while it is worthy of a blog post itself, I’d rather focus on the statements that follow that one. The piece I’d like to point out here is quite simply how strange Romney’s comments are, given what’s happened in the housing market these past few years. Romney is speaking here as a savvy investor might, one who has a wider view of the economic world and feels confident that his prescriptions are the right ones (as you’d expect a presidential candidate to do.)
The first bolded statement above denotes Romney’s appraisal of the housing situation as being a problem of pricing. Investors would be happy to buy these foreclosed properties, in Romney’s mind, but the aftereffects of massively bubble-inflated prices combined with the HAMP program and others to support homeowners (despite the fact that they were never designed to “work” properly) mean that prices still have a ways to come down before they’ll be bargains.
There is no mention of the suffering such aggressive inaction by the government would cause for homeowners struggling in this economy, rather there is a rather academic appraisal of the most efficient method for flipping homes. There is no mention of the suffering because Romney’s default position is to see the world from the perspective of someone with capital to invest (leaving aside the obvious fact that he was a co-founder of a little firm called Bain Capital). I mean, it must be difficult for someone with hundreds of millions of dollars in accumulated wealth to see the world differently, just as it is difficult for anybody to see the world through another’s eyes. But one might at least hope for a bit of empathy from a presidential candidate; to hope that at least he/she understands the plight of others, no matter how alien the other’s experience might be to him/herself. That is, I would think, a virtual prerequisite for being the leader of a nation that is as diverse and vast as America is – the ability to empathize.
Now for the second bolded piece above: ““The Obama administration has slow-walked the foreclosure process that long existed, and as a result we still have a foreclosure overhang.” I read a lot of writing about economics on a regular basis from a broad range of thinkers, and a fair amount of writing on finance, and I believe that is the first time I’ve ever seen the term “foreclosure overhang” used, by anyone. A quick Google search reveals that perhaps I just haven’t noticed the term before, or haven’t read any articles specifically referencing foreclosure overhang, because in any case, there’s quite a bit of literature out there on it!
A useful definition of foreclosure overhang:
The term refers to the number of foreclosed properties that will wind up on the for-sale market. In the worst case, millions of foreclosed homes offered at fire-sale prices will cause an excess supply that will dampen prices for years to come.
The banks who made the loans, however, will not allow their entire stock of housing to sell at fire-sale pricing, so they are holding much of their stock in reserve until housing prices appreciate. As well, each sale of a foreclosed home by a bank requires the bank to write down the face value of the original mortgage (that had been, until the resale, held as an (overinflated) capital asset) thus reducing the capital reserve ratio the bank must preserve to satisfy the regulators. Refinancing mortgages en masse would similarly require writing down the value of the original mortgage, which clearly the banks are loath to do, so good luck getting any relief for homeowners. Of course, there is the fact that it may make some sense for banks to allow homeowners to continue to occupy their homes, even if they are foreclosed upon:
Overgrown lawns are the least of the problems. It’s not uncommon for vacant homes to be stripped of copper and appliances. That’s why it isn’t nuts to keep homeowners in place even when they are severely delinquent if the local property market is so backed up that a home won’t be sold quickly (the Times says that average time to foreclosure is 400 days and another 176 days to sell it). The homeowner is still liable for property taxes if the home has not been seized by the lender and will maintain the property at a better level than the bank would.
But of course, as usual the banks are just dancing around the rampant fraud that plagued their activities (as I’ve documented fairly extensively on this blog) and it is interesting that Romney says nothing about that fraud. Again, his concern is for the macro-effects of widely depressed housing prices and how that may or may not affect investment conditions and bank balance sheets, with no mention of what resolving the “foreclosure overhang” will do to families all across America.
This is more “invisible hand of the market” mumbo-jumbo, more laissez-faire, more Randian nonsense. The market imbalance that caused this mess, the housing bubble, was caused by a combination of Alan Greenspan’s cheap money polices and a deregulatory regime started by Clinton and perfected under Bush. Leaving the market to its own devices got us into this, and Romney’s solution is to once again leave the market to its own devices. He is, truly, a creature of Wall Street; do we truly want such a creature in the White House? It seems more and more likely he’ll be the Republican nominee, what does that mean for those of us in the 99%?
No comments:
Post a Comment